FINANCIAL CRISIS DASHES HOPES IN WEST VIRGINIA

By LINDSEY GRUSON, Special to the New York Times

Published: May 19, 1987

CHARLESTON, W.Va.—
In an optimistic State of the State Address last January, Gov. Arch A. Moore, who has made a career of finding silver linings in dark clouds, proclaimed 1987 ''the year of education,'' the spearhead of a multifaceted program to lure new industry.

But January's hopes evaporated, in part because of a $65 million revenue shortage. After months of hestitation, the Governor was forced to order state agencies to slash spending, leading the Board of Regents to vote to close West Virginia's 16 state colleges for a week and to cancel summer sessions. So the ''year of education,'' in which the state was to have poured money into schools from the elementary to the college level, had to be shelved.

The decision to close the colleges, later reversed under pressure from Mr. Moore, underscored the fact that a decade-long effort to diversify West Virginia's economy, long dependent on manufacturing and mining, has made only limited progress. Although there are a few areas of growth, the state is an island of depression.

''Virtually every type of fiscal crisis is boiling over at the same time,'' said Robert Chambers, the Speaker of the West Virginia House of Representatives. ''We have an economy that is not that strong in the best of times, and we in state government have made it worse.'' Impact of Fiscal Crisis

The crisis has forced some state agencies to finance operations from capital accounts and to postpone purchases. It has frustrated efforts to improve the state's education system, a prerequiste if West Virginia is to succeed in its efforts to attract high-technology industries. And it has slowed the payment of bills and state income tax refunds.

The crisis has also set off a battle between the Democratic-controlled Legislature and the Republican Governor, blocking next year's budget.

''What we've had in the last year is cat and dog government - everybody's fighting like cats and dogs instead of pushing together,'' said Representative Bob Wise, a Democrat who represents West Virginia's Third Congressional District and is a frequent critic of Mr. Moore.

''West Virginia is going through the shakeout that's affected manufacturing industries nationwide,'' Mr. Wise added. ''The difference is that we've not diversified like the others.''

The crisis has wilted the optimism that sprouted in the spring of 1986, when for the first time in four years the state's unemployment rate was not the highest in the nation. Dome Project Is on Hold

To celebrate what was then widely viewed as a sign of an economic renaissance, Governor Moore ordered the regilding of the dilapidated dome on the State Capitol, the crown of Charleston's skyline. But, like so many other hopes and plans that were conceived at that time, the project is now on hold.

The Governor and legislative leaders have fought over a number of proposals to close the budget gap. They include raising the sales tax on food from to 5 percent from 3 percent, selling the state-owned liquor stores and wooing companies to dispose of nuclear waste and East Coast garbage.

Mr. Moore, who has been blamed by many for not heading off the fiscal crisis, points out that West Virginia's problems are by no means unique. The National Governors Association reported in March that 23 states besides West Virginia had been forced to cut spending and that a record number of legislatures were considering tax increases. Decline in Coal Prices

But West Virginia has been harder hit than other states in the region. Experts say that is because in many ways it is much more akin to the depressed oil states in the Southwest than the surging high-technology areas in the Northeast.

Like the Southwest, West Virginia is suffering from an energy surplus. In addition to a sharp drop in oil prices, the surplus last year precipitated a $12-a-ton decline in coal prices, and coal is an essential product here.

The situation has been exacerbated by a rising concern about acid rain, which is primarily caused by emissions from factories and power plants that burn coal. Many big industrial users, which switched to coal after the oil shortages of the mid-1970's, are now switching back to oil, at a time when automation makes coal mining more efficient than ever.

''The irony is that we're mining more coal than ever before, just with less people,'' Congressman Wise said. Capping a 20-year decline, interrupted only by the energy crisis, the number of coal miners has dropped to 34,300, 46 percent below the level of 1976, when there were 64,100 miners, according to the West Virginia Department of Employment Security. Flight From Coal Counties

In the coal counties, that has caused a depression and another wave of people leaving the state. The population of Lincoln County, which is heavily dependent on mining, dropped to 21,200 in July 1985 from 23,675 in April 1980, said Dr. Tom S. Witt, executive director of the Bureau of Business Research.

Despite the gloomy economic picture, there have been a few rays of hope. Tax receipts in April were $22 million above the estimated amount, and comprehensive tax revision is scheduled to go into effect in July. Officials hope the tax revision will lure new companies to the state, and cite a recent state-financed study showing that the cost of doing business in West Virginia for such industries as banking, insurance and brokerage is significantly lower than elsewhere in the region.

An increase in the number of such service industries has already led to a mini-renaissance around Charleston, and the economic boom in Pittsburgh and Virginia is spilling over into neighboring areas of West Virginia. Two weeks ago, for example, Software Valley Inc., a high-technology development company, opened its headquarters in Morgantown, a coal-mining center in northern West Virginia.

The state, which is strategically located between the country's largest markets and the Sun Belt, attracted more than $1 billion in new investment last year. And the tourist industry remains strong. ''It's going to get better,'' said Mr. Chambers, the House Speaker. ''But the transition has put us in rough waters.'' A Paradigm of Poverty

Much of the state remains a paradigm for Appalachian poverty. It is among the nation's leaders in virtually every category used to measure poverty. It is 49th in per capita income, third in the percentage of houses without complete plumbing facilities and 50th in the percentage of residents who have at least 16 years of education.

Many officials note that last year's growth was offset by the sharp drop in coal prices. They also note that, while 1987 is supposed to be ''the year of education,'' the state has one of the lowest literacy rates in the nation.

''Mountains are nice and we have plenty of them,'' one official said. ''But we don't have good schools.''